Why Bitcoin Can Surge When Stocks Plunge

By Juan Villaverde on March 25, 2020

Last week, while Bitcoin  (BTC, Rated “B+”) jumped 30%, the Dow plunged nearly 19%.

Yesterday, while Bitcoin was up only modestly, the Dow staged its biggest rally since 1933.

Today, the two markets are on different paths again — Bitcoin down slightly, the Dow continuing to rally sharply.

And this is certainly not the first time these two markets have diverged dramatically; in virtually every year since Bitcoin was born, they have been mostly out of sync.

Why such divergence? There are three major reasons …

Reason No. 1: Stocks and cryptocurrencies are entirely different asset classes. Bitcoin prices sometimes behave like gold, sometimes like fiat currencies, maybe even like safe-haven bonds.

But rarely like stocks.

Cryptocurrencies like Bitcoin do not represent investments in any company. And unlike traditional assets, they involve no middlemen and have no counterparty risk.

Reason No. 2: Stocks and cryptocurrencies march to different drums.

Yes, both are cyclical.

And in fact, both have a long-term cycle that averages around four years.

But these cycles are almost always in very different time frames!

In fact, based on our cycles model, crypto assets are trading near their long-term cyclical lows. But even after their recent crash, stocks are trading near their long-term cyclical highs.

Reason No. 3: Stocks are typically the first victims of a global debt crisis. Bitcoin was created as an answer to a global debt crisis. Indeed, almost any Bitcoin fan can probably quote this memorable remark written into the very first block of the Bitcoin blockchain:

“The Times 03/Jan/2009 — Chancellor on
brink of second bailout for banks.”

This may sound a bit mysterious to you. But to us, it’s a not-so-subtle message in a bottle, left behind by the creator of Bitcoin.

He’s warning us of the inherent instability of our financial system. And he’s telling us that Bitcoin, or something like it, is urgently needed to restore sanity.

Best,

Juan

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